BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 407
Senator Padilla
As Amended April 23, 2009
Hearing Date: May 12, 2009
Civil Code
BCP
SUBJECT
Property transfers: Plumbing Fixtures Replacement
DESCRIPTION
This bill would require the owner of a property to replace
high-water-using plumbing fixtures prior to any sale or transfer
of the property that occurs on or after January 1, 2014. This
bill would additionally:
provide that compliance is a condition of escrow for any
sale or transfer;
require the seller or transferor to certify to the
prospective purchaser that these requirements have been
satisfied;
require a real estate agent, broker, or salesperson to
give written notice of the requirements of this bill; and
provide that the bill would not preempt retrofit
requirements of a city, county, or city and county, as
specified.
BACKGROUND
California is currently in its third year of drought, with rain
and snowfall (the primary sources of water) well below normal
levels. The resulting water shortage, as well as California's
growing population, pressure on the state's water storage and
delivery system, and climate change, have contributed to
California's current water crisis.
On February 27, 2009, Governor Arnold Schwarzenegger proclaimed
a statewide emergency due to drought and asked Californians to
reduce their water use by 20 percent. Although there are many
(more)
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ways to reduce water usage, one of the most effective is to
replace older high-water use plumbing fixtures with newer, more
efficient models. That replacement, combined with regularly
checking for leaks, can reduce per capita water use by 35
percent (according to the American Water Works Association).
To facilitate the replacement of older high-water use plumbing
fixtures with water conserving fixtures, this bill would require
a seller to replace those fixtures prior to any sale or transfer
of the property, as specified. The bill would also codify the
intent of the Legislature that retail water suppliers provide
funding to assist owners with that requirement, but it would not
require that that funding be provided.
This bill was approved by the Senate Transportation and Housing
Committee on April 21, 2009.
CHANGES TO EXISTING LAW
Existing law requires that all water closets or urinals sold or
installed in the state use no more than an average of 1.6
gallons or one gallon per flush, respectively. (Health & Saf.
Code Sec. 17921.3.)
Existing law generally regulates the transfer of real property,
escrow agents, and real estate brokers. Existing law requires
certain disclosures to be made upon the transfer of real estate.
(Civ. Code Sec. 1102 et seq.)
This bill would provide that on and after January 1, 2014, all
non-compliant (high water use) plumbing fixtures in any
residential or commercial real property shall be replaced prior
to the time of sale or transfer by the property owner with
water-conserving plumbing fixtures.
This bill would provide that compliance is a condition of escrow
for any sale or transfer.
This bill would additionally provide that a seller or transferor
of real property must certify to the prospective purchaser or
transferee, in writing, that the above requirements have been
satisfied. That certification would be a material term of any
sale or transfer and may be included in other transactional
documents.
This bill would require any real estate agent, broker, or
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salesperson involved in the transfer of title to property to
provide written notice to the transferee and transferor of the
requirements of this bill prior to transfer of title. This bill
would specify that the duty to provide that notice is the only
responsibility of the agent, broker, or salesperson, and that
the agent, broker, or salesperson shall have no liability for
any transferor's failure to comply with any other provisions of
this bill.
This bill would provide that once a transferring property owner
has received notice of the requirements of this bill, he or she
shall be solely responsible for compliance with them.
This bill would also define non-compliant plumbing fixture,
water-conserving plumbing fixture, and sale or transfer. This
bill would exempt registered historical sites and specified
transfers from its requirements.
This bill would provide that the bill does not preempt a city,
county, or city and county from adopting or enforcing any
retrofit requirements relating to non-compliance plumbing
fixtures that result in an equivalent or greater amount of water
savings than those provided for in this article.
COMMENT
1. Stated need for the bill
According to the author:
There is a significant cross-section of California's
population that resides and/or owns older properties that
are not equipped with water-efficient plumbing fixtures as
are found in more recently-built structures. Water
conservation is a statewide goal, meaning that every
resident has the burden of ensuring that he or she observes
water efficiency practices to the best of their ability. It
is fair to say that upgrading plumbing fixtures in older
structures is rarely done.
The Association of California Water Agencies (ACWA), a
cosponsor, states:
Currently many water agencies have been implementing
voluntary incentive based programs which provide consumers
with rebates, vouchers, or in some cases the fixtures
themselves to promote water conservation and water use
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efficiency. SB 407 would be the next step in the process to
take such local efforts to a larger scale and implement the
program statewide.
2. Burden on owners prior to sale or transfer of property
On and after January 1, 2014, this bill would require a property
owner to replace "non-compliant" plumbing fixtures with
water-conserving plumbing fixtures prior to the sale or transfer
of a residential or commercial property. Compliance with that
requirement would be a condition of escrow, and the seller must
certify that he or she had complied with this requirement.
The California Association of Realtors (CAR), in opposition,
believes that the retrofit-upon-resale approach is doomed to
fail in achieving the state's goal of reducing water consumption
by 20 percent by the year 2020 (based on the fact that 70
percent of housing stock was constructed prior to implementation
of water efficiency standards in 1992, and less than 25 percent
of homes are expected to change hands before 2020). CAR further
notes that the obligations imposed on homeowners would be
unreasonable and overly burdensome. Specifically, homeowners
must evaluate their fixtures, and, if they must replace the
fixtures, locate a plumber, complete the work, and deal with any
code requirements. As compliance with the bill is a condition
of escrow for any sale or transfer, those homeowners would be
unable to transfer their property until making those
improvements (unless an exception applies).
In response to concerns about the burden on homeowners, the
author's office provided the committee with information on the
bare-minimum cost of toilets (approximately $157.25 for a low
end 1.6 gallon per flush model), bathroom faucets ($18.00 for a
2.2 gallon per minute model), and shower heads (approximately
$15.40 for a 2.5 gallon per minute model). Those costs may also
be offset by rebates that may be available in many areas (for
example, the San Francisco Public Utilities Commission provides
a $125 rebate for replacing inefficient toilets). The author's
office also provided the committee with information regarding 11
cities and agencies that already impose (or plan to impose)
requirements similar to this bill. Despite the fact that
certain locals are imposing similar retrofit requirements upon
resale, this bill would expand those requirements statewide to
communities with unique issues (such as high foreclosure rates)
for which retrofit upon resale may not be appropriate. The
author's office notes that the bill's codified findings and
declarations state the intent to encourage retail water
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suppliers to provide incentives, financing mechanisms, and
funding to assist owners with obligations imposed by this bill.
Although not going into effect until January 1, 2014, the
current housing and economic crisis has highlighted the fact
that there are (and will always be) individuals who are unable
to make their mortgage payments, or who live
paycheck-to-paycheck with no reserve savings. It is unknown how
the additional burdens imposed by this bill would impact
struggling homeowners in foreclosure, or even lenders that may
still need to auction off large volumes of previously foreclosed
properties. As the imposition of the above requirements on
homeowners in foreclosure would place a burden on them at a time
in which they are already unable to pay their mortgage and other
costs, the bill should be amended to exempt trustee sales, and
transfers of property that are in foreclosure.
Suggested amendment:
On page 5, line 4, after the period, insert:
(i) A sale or transfer of real property pursuant to a
nonjudicial foreclosure governed by Article 1 (commencing with
Section 2920) of Chapter 2 of Title 14 of Part 4.
(j) A sale or transfer of real property upon which a Notice
of Default has been filed pursuant to Section 2924 of the
Civil Code.
The above suggested amendment would cover properties in
foreclosure, but would not address the issue of other struggling
homeowners who are not yet in foreclosure. The Division V
residents of the Central Basin Municipal Water District, in
opposition, note concern "regarding the potentially high-costs
associated with retrofits, particularly within the lower-income
communities of the Central Basin service area." To address the
circumstance where a mandatory retrofit could cause a
significant financial hardship to the seller of the property,
the committee should also consider whether the bill should be
amended to exempt those situations.
Suggested amendment:
On page 5, line 4, after the period, insert:
(k) Sales or transfers in which the requirements of this
Article would impose a significant, financial hardship on the
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seller or transferor, and the seller or transferor has
informed the prospective purchaser or transferee that this
Article does not apply due to that financial hardship.
The committee should also consider whether the bill should be
amended to exempt short sales. (A short sale occurs when the
proceeds from a sale fall short of the balance owed on a loan.)
In those sales, the lender or servicer generally agrees to
discount the loan balance due to a hardship on the part of the
borrower. The following suggested amendment would ensure that
those struggling borrowers are exempted from the requirements of
this bill.
Suggested Amendment:
On page 5, line 4, after the period, insert:
(l) A sale or transfer in which the beneficiary agrees to
release its lien on a property in return for payment of an
amount less than the secured obligation.
While the above issues concern residential homeowners, it should
also be noted that the bill also applies to multiunit
residential, and commercial real property. Unlike a residential
home with one, or two bathrooms, a commercial building or a
large apartment building could have a large number of
noncompliant plumbing fixtures that must be replaced.
3. Written notice
Residential real property disclosures include, among other
things, the broad transfer disclosure statement (TDS),
information about Mello-Roos liens, property taxes, former use
as a federal or state military training location that could
possibly contain explosive munitions, and a natural hazard
disclosure statement (NHDS), disclosing risks of flooding, fire,
and other natural hazards to the property. (Civ. Code Sec. 1102
et seq.) Failure to provide the statutory disclosures does not,
by itself, invalidate a transfer, but any negligent or willful
violation subjects the seller to liability for damages as a
result of that failure. (Civ. Code Secs. 1102.13, 1103.12.)
This bill would augment those existing disclosures (and those
for multiunit residential and commercial property) by: (1)
requiring sellers to certify that any non-compliant plumbing
fixtures have been replaced; and (2) providing that the
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certification may be included in other transactional documents.
Instead of requiring a separate disclosure (the certification)
for residential property with one to four units, the author has
agreed to work with committee staff to incorporate that
disclosure into the TDS. A separate disclosure would still be
required for properties for which the TDS does not apply.
This bill would additionally provide that the above
certification is a material term of any sale or transfer. CAR,
in opposition, contends: "by making a statutory determination
that changing out every faucet is a 'material term' of the sale
[, this bill] will invite tens of thousands of rescission
actions based upon technical non-compliance with the bill."
Accordingly, the committee should consider whether the phrase
"is a material term of any sale or transfer" should be stricken
from the bill.
Suggested Amendment:
On page 3, line 37 strike out "is a material term of any sale
or transfer and"
This bill would also require any real estate agent, broker, or
salesperson to provide written notice to both the buyer and
seller of the requirements of this bill prior to transfer of
title to the property. The broker, agent, or salesperson would
have no liability for the seller's failure to comply with the
above requirements, and the property owner shall have sole
responsibility for complying with them. Despite that exemption
from liability, CAR states "we (realtors) are not water
conservation experts, do not want to be 'water cops' in a
transaction, and will not be the guarantors of some other
contractors or experts work product." It is unclear, however,
how the current language of the bill would require a realtor to
be a "water cop" or impose liability on realtors for a seller's
failure to comply with the provisions of this bill.
To clarify that the above language limiting the duties of the
agent, broker, or salesperson does not inadvertently alter other
duties they may have under existing law, the following amendment
is suggested:
Suggested amendment:
On page 5, line 18, after the period, insert:
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(d) Nothing in this section shall be construed to alter any
existing duty of the transferring property owner, real estate
agent, real estate broker, or real estate salesperson under
any other provision of law.
In addition, the following amendment is suggested to strike
confusing language that states that the owner is solely
responsible for compliance with the requirements of this bill
once they have received notice of its requirements. The bill
already states that it is the owner's responsibility to replace
noncompliant plumbing fixtures and does not condition that
requirement upon receiving notice from an agent, broker, or
salesperson.
Suggested amendment:
On page 5, strike out lines 16 through 18, inclusive.
4. Remaining opposition concerns
In addition to the above concerns, CAR's other concerns include:
(1) timely implementation may be hindered by market
fluctuations; and (2) that the proposal overlooks renters.
The California Business Properties Association (CBPA), in
opposition, raises similar concerns, and notes that new owners
usually devote significant time and money to upgrading a
purchased property, and that "[m]andating this specific upgrade
as part of the escrow process could act as a significant
deterrent to allowing that property to transact to a new owner
that is willing to make such investments."
5. Nothing would preempt equivalent or greater local retrofit
requirements
It should be noted that this bill would not preempt a city,
county, or city and county from adopting or enforcing any
retrofit requirements relating to noncompliant plumbing fixtures
that result in an equivalent or greater amount of water savings.
Provided that the above-mentioned 11 cities or agencies that are
currently planning or implementing similar requirements meet
that standard, the effect of this bill would be to impose
similar requirements on other communities (some of which may
have made a reasoned decision not to impose such requirements).
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Support : GreenPlumbers; TreePeople; Three Valleys Municipal
Water District (TVMWD); San Diego County Water Authority; Inland
Empire Utilities Agency; Glendale Water & Power (GWP); Los
Angeles Business Council; Simi Valley Chamber of Commerce
Opposition : California Association of Realtors; California
Business Properties Association (CBPA); Central Basin Municipal
Water District (Board of Directors and Division V residents);
Municipal Water District of Orange County (WDOC)
HISTORY
Source : Metropolitan Water District of Southern California;
Association of California Water Agencies; San Francisco Public
Utilities Commission
Related Pending Legislation :
SB 183 (Lowenthal), would require that a carbon monoxide device
be installed in existing dwellings intended for human occupancy
that have a fossil fuel burning appliance, a fireplace, or an
attached garage. This bill was approved by this committee on
April 28, 2009.
Prior Legislation :
AB 715 (Laird, Chapter 499, Statutes of 2007) prohibited the
sale, after January 1, 2014, of toilets that exceed 1.28 gallons
per flush and urinals that exceed 0.5 gallon per flush.
Prior Vote : Senate Transportation and Housing Committee Ayes 7,
Noes 3)
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